Yak4Ever May Not Be Around 4Ever

from the regulatory-arbitrage dept

TechCrunch is reporting on the demise of Yak4Ever, a startup company that exploited a regulatory loophole to allow them to offer free international calls. The bill was being paid by large telephone companies like AT&T and Verizon, which were forced to pay exorbitant rates to connect the calls under the FCC's byzantine long distance regulations. Apparently, the Baby Bells got fed up and simply stopped paying the bills, and the FCC hasn't ruled on the issue quickly enough to keep Yak4Ever in business. We wrote about a similar company, called FreeConference.com, back in January. That one offered free conference calling services, again subsidized by exorbitant interconnection charges. In that case, we criticized AT&T for blocking the calls instead of appealing the fees to the FCC. But regardless of the legal details, it's awfully hard to have much sympathy for either Yak4Ever or FreeConference. It seems pretty clear that they're not creating new wealth; they're just taking advantage of poorly-thought-out FCC regulations to make a buck at the expense of other phone companies. This is one of the reasons regulators should leave interconnection rates to market forces whenever possible. If long-distance interconnection rates were determined in competitive markets the way transit agreements are negotiated between Internet carriers, this sort of regulatory arbitrage wouldn't be a problem. It's only when the FCC is setting rates by fiat that these kinds of opportunities crop up.

Is a problem

While I agree that FreeConference and Yak4Ever don't really deserve any sympathy, neither do the big Telcos. When it comes down to it these regulations, however misguided, exist because of prior abuse on the their part. This is part of the penalty.

outdated

The concept of charging more for the distance voice data travels is outdated. They need to revise the laws.
I can set up a teamspeak server and anyone on the planet can connect to it and we can talk at no extra charge to them.

Charging someone because their call crosses an imaginary line is like charging someone the difference between a road trip and a plane trip because one side or the other might lose money.

if only you could negotiate with a Bell...

Your facts are not correct. The access fees are not exorbitant. Since the FCC ruling in June, the only companies providing these services are so called Competitive LECs, whose termination fees vary from about half a cent up to the top tier NECA rate of 2.4 cents (a few have a small transport fee on top of that). The FCC has already shut down the few ILECs who were "exploiting a regulatory loophole" and charging exorbitant rates of up to 15 cents. FreeConference was only working with companies whose access fees were significantly less than the average long distance revenues of 6.3 cents per minute (prior to the FCC's action, the average termination fees at locations we have conferencing at was about 4 cents). It was chat businesses and international long distance businesses who were creating the real problem for AT&T by driving minutes to a few high cost locations. The costs of free conferencing are low enough to be very profitable to AT&T and the other long distance service providers. Because we offer a business service, more than 70% of our calls are during business hours on weekdays. These calls come from cell phones and business phones that typically buy buckets of minutes. By using our services, customers have to buy more long distance minutes. These calls clearly generate new long distance revenues to AT&T and others (and even all-you-can-eat plans are priced in a way that they are profitable). We have been doing this for over 6 years peacefully to everyone's benefit. AT&T is using excess capacity to deliver and has costs measured in the low fractions of a cent. The rural telco spends a fair amount, but recovers the cost of the new switching gear and network equipment they install. We spend a fair amount, but more than cover our marketing and equipment expenses. Consumers get a very efficient and low cost product, rural companies are given a chance to grow business in their areas for the benefit of all their customers, and the long distance carriers get new profits from new long distance service. This doesn't cost drive up anyone's cost. In fact, the opposite is true, since it spreads the fixed costs of the telecom network over a larger revenue base. We would be happy to negotiate these rates, but the complexity of the networks and the market power of the incumbents who get even higher profits from their own conferencing business or 800 services ensures we can't. Right now, the carriers are getting a free lunch--they are collecting revenues at our expense because the FCC believes in selective enforcement and has acted slowly enough to enable the carriers to tie up the courts. But do not plan to report on our demise. We were the innovators that invented web-based automated conferencing and drove conference calling prices down from more than 50 cents a minute to their current level of 5-10 cents per minute. We were the company that enabled these services to become within reach of small businesses, nonprofit organizations, community activists, and families just wanting to connect. We will continue to innovate and find ways to bring low cost and efficient services to these same individuals despite the best efforts of the anticompetitive carriers.